Loan, not constitutional right – AMCON boss

Mr. Mustapha Chike-Obi, Managing Director/Chief Executive Officer of Asset Management Corporation of Nigeria (AMCON), a debt recovery vehicle set up by the Federal Government about one-and-half years ago to clean up the toxic loans in the banks, has been in the news in recent times. In this interview with Ibrahim Apekhade Yusuf, Chike-Obi, who doesn’t suffer fools gladly, speaks on the raging controversy over the N141billion settlements to the corporation by business mogul, Femi Otedola, and also takes us through the activities of the corporation in the last 18 months or so vis-à-vis its challenges and prospects

Could you respond to the raging controversy involving the N141 billion settlements made by Femi Otedola to AMCON in view of the nine-man committee set up by the Reps to probe the deal?

I have a number of things to say about this whole drama from the House of Reps. First, I don’t like that it is called a deal. It is a normal settlement agreement that we had. I understand that the National Assembly has the responsibility to account to the people.

But people look at this transaction and say all sorts of things. I only wish that the National Assembly had invited me to come and make presentation about the transaction in a closed briefing session. And if after that briefing, they were uncomfortable and had other questions, they should have made their queries known before people started making all kinds of insinuations about secrecy and all of that.

Hopefully, I know they want to be informed, they want to ask question, but the words I’m hearing, “secrecy”, “unauthorised”, and so on, are unnecessary. As far as I’m concerned, we’re all different arms of government who are trying to do the same job. So, there is really no need for rancour of any sort. But if they want information about these transactions, we’re happy to share it anytime, any day.

Otedola’s companies were among the 131 companies blacklisted by the CBN from taking further credits from banks due to their indebtedness. I think people are curious that the issue of Otedola’s settlement to AMCON came up just after the CBN directive…

One thing I need to say is that this settlement with Femi Otedola had nothing to do with the CBN directive. We have been engaging with him for at least nine months. We had to value the assets and that takes time.

We had to get different sets of valuers to value the assets. Then, we had board decisions; we had exco meetings, then board meetings. It was just a coincidence. If people are imputing that the settlements had something to do with the CBN directive, they are incorrect.

It is just unfortunate that people are insinuating that these settlements had something to do with the CBN announcement. That’s not true.

What I can tell you, however, is that there are people who have now approached us because of the CBN directive and that process will take anywhere from three to six months. I wish it was that easy to recover debts. He (Otedola) had court injunctions, we had to negotiate. So, it is a complicated matter. We had to negotiate, we got lawyers involved. But it is a changing list because people perform. And if they convince AMCON that they can pay, then we’ll write the CBN. And if the CBN agrees with AMCON’s recommendations, then only they can remove the person from the list. Bu the CBN doesn’t necessarily have to agree with AMCON.

So, it is not an AMCON regulation. The purpose of the CBN directive, I must emphasise, is to prevent a bad situation from occurring again. So, we’re certain that if people that have demonstrated that they cannot pay are disallowed from the accessing credit, the banking system would be protected. That’s the objective. Nobody said let’s do this so that we can pay AMCON, no. They did it so that they can protect the banking system because we know these people brought the banking system to its knees and we need to be careful before we let them in again. So, it’s not about AMCON, we are well ahead of our projections.

Besides Otedola, could you let us in on the other companies that have made efforts to clear their debts?

(Laughs)…Nice try.

It has been argued in some quarters that the CBN’s decision to cut off credit to debtors is an attempt to criminalise debts. What’s your view on that?

Criminalise is the wrong word because nobody is pursuing anybody criminally and criminalising anybody. Having said that, what people have to understand is that there is no constitutional right to borrow money from the banks. If the banks decide to give you money, pay it. Most importantly, they have to consider that you can pay back that loan.

Now, in other countries, they have something they call credit scores and if your credit score is below a certain amount, you cannot borrow from the banks anymore, whether as an individual or an institution.

So, the notion that somebody who has demonstrated that they are unable to pay deserves further credit is absolutely wrong.

In fact, all those debts that AMCON bought, the banks have been trying to recover them in the last two to three years or more. So, somebody who has demonstrated that he does not have the ability to pay up his debts, I think it is wise in order to avoid the crisis to not let them borrow more money so that they don’t create further problems down the road.

So, this is a CBN prudential regulatory decision and we at AMCON supports it because we do not want a situation whereby five years down the road, there is another issue that somebody has to rescue a bank. We have said that the problem of toxic loans in the banks is over. But part of it is to ensure that the people that created the problems are watched carefully to make sure they don’t borrow more money. So, if somebody owes a bank, it is wise for the bank to say you owe us money that you have not paid, and therefore you cannot borrow more since you haven’t demonstrated the ability that you can pay. So, nobody is criminalising anything.

Also tied to the issue of bankruptcy is the problem of the escalating rate which many borrowers are contending with. I think this is a major hurdle..

I don’t know what point you’re trying to make. But if you don’t have enough resources as a business, the best thing to do is to increase your equity. I think this is a problem with most Nigerian businesses; most of them rely on debts to fund their businesses. At some point, it may become a problem to pay such debts. If you can’t pay back a loan, there is no need taking it in the first place.

The facility is usually subject to going rates, no doubt. But you should plan your business and take decisions based on wise calculation of the risk involved.

So, I’ll not be so quick to blame it on the banks and so on. The CBN in the last two years has made it clear that it will ensure price and exchange rate stability possible and in a predictable manner because it is only when inflation comes down that interest rates can also come down.

You talked about credit rating earlier. We don’t have too many of these around apart from Augustus and co and so on. Is it that there are no opportunities available in credit rating?

It is still developing in the country. It’s one step at a time. Credit agencies require some expertise, some investments and we have to have enough people that would be on ground. So, I think they’re developing. But I think that five years from now, credit agencies will become renowned in the country.

Having said that, to what extent do you think credit rating agencies would help stabilise the financial sector?

They would provide information that a prospective lender would use in making their lending decision. That I believe will ensure that the banks know the customers’ financial habits, his lifestyle, among others. Yes, credit rating agencies will help you make lending decisions but the banks are not supposed to rely on them completely. The banks would need to use other variables to reach a final decision.

Still on knowing your customers, there have been cases where relationship managers of most banks hardly know their customers. Don’t you think this dereliction of duty by this category of bank staff is partly responsible for the crisis in the banking sector?

AMCON’s job is clearly spelt out. So, when you talk about behaviour of bankers, that’s not our core, it’s more a matter for the CBN. We’re not a regulator. Much as I agree with you that the banks need to really know their customers, I think it’s the CBN that can do something about it. So, AMCON cannot tell the banks to know their customers better.

But we can tell the CBN, that part of the problem we noticed with ABC is so and so, do something about it as a regulator.

I know you have recovered over 500 loans. But could you bring our readers up to speed on the activities of your corporation in the last one and half years?

Our work was in three stages. The first and immediate thing we had to do was to take out the nonperforming loans from the banks. The reason why we did that was because when banks have a high percentage of nonperforming loans, they cannot focus on their real business.

So, we took out the nonperforming loans because capital was trapped in those loans. That was the first thing.

The second thing is having taken out the non-performing loans, there was a need for capital in most of those banks.

As far as we are concerned, no bank has more than five per cent of those debts.

We needed to capitalise the bank because after they took the loans the bank recorded a lot of losses. Most of them were having negative capital. I really need to explain to the public what it means when a bank has a negative capital. It means that their assets are not enough to pay their liabilities. And the first liability that a bank must pay is the depositors. So, when you have a bank with negative capital, it means you can’t pay the depositors and if you can’t pay the depositors, then every other liability is legally extinguished. Because if you cannot pay the depositors then you certainly cannot pay the staff salaries, gratuities, can’t pay shareholders and you cannot pay anybody.

So, everybody from the depositors was already wiped out. So when people complain and shout I just wonder.

What AMCON did by recapitalising those banks from zero was to pay the depositors. AMCON’s legal obligation is to make sure a depositor must not lose money. So, we recapitalised those banks to ensure that when people get to the banks they can get their money back.

The third and last stage is to manage all the assets that AMCON has now acquired, the properties, non-performing loans, in such a manner that we would make maximum resources in order to satisfy our obligations.

So, now, we have become really what our name is, an asset management corporation. And our objective is to make sure that we have enough assets at the end of a period of time to pay every liability without taxpayers’ money.

On the last point you made about taxpayers’ money, it is the view of some people out there that the corporation is being heavily funded through taxpayers’ fund. What is your take on that?

It keeps amazing me that people talk about taxpayers’ money. The only taxpayers’ fund in AMCON was the statutory, budgeted expenditure of N10billion which was used as take-off grant for AMCON. When you’re talking of the obligation of N5trillion debts that we have, you’ll see that the N10billion is a very small amount. So, it always amazes me when people keep talking about taxpayers’ money. This country should not and does not have N5trillion to give AMCON.

But what the government had done is to provide guarantee so that AMCON can realise money from the assets so that at the end of time, AMCON can have a way of paying back its obligations without spending taxpayers’ money. It has always been the plan and the plan is still on course.

I’m aware that AMCON has recovered over 500 loans out of about 12,000 loans. What measures has AMCON put in place to recover the rest?

We have recovered for restructuring about 500 loans. Now keep in mind that the top 1000 loans represent about 90 per cent of the obligation. The balances are smaller. So, when you say 500 loans, those loans represent about two thirds of all our outstanding.

How would you assess AMCON’s loan recovery drive thus far?

The record for recovering non-performing loans that we are aware of is the Malaysian model, which is about 54 percent. So far, we are averaging over 100 per cent. We recognise that easy loans are easy to recover. So, naturally, you do the easy ones first. But overtime, we will be able to get around the 100 per cent.

But again, as I said, the best in the world, which is 54 per cent that we know about, is by Danaharta in Malaysia. So, we don’t want to blow any trumpet yet; we want to keep working hard. But our plan is for 70 per cent, that’s what we projected and the balance will come from the banks. But so far, we’re doing very well. But time will tell.

What is the lifespan of AMCON? And if it does have a lifespan, what is the exit plan?

AMCON does not have a lifespan. But AMCON, as I described it is a self-reducing organisation. We’re planning that this whole process should take up to 10 or 15 years. That’s our plan. In the best case, it could be 10 years but in the worse case 15years depending on how things work out. We hope to get smaller and smaller. But it’s useful to have an organisation that has a law and a body even if it’s one or 10 employees so that if there is any need to resuscitate AMCON, it will be easy. But it is a wise decision that AMCON does not have a terminal date. We’re planning this rescue operation; this phase will be almost finished or very small.

On a lighter note, I know part of your brief is to go after debtors and all of that. If you’re not chasing after debtors, how do you unwind?

(Laughs). My job is a fulltime one. My brief is to ensure that Nigerian banks are rescued from incidents of bad debts and all of that. And we’re working round the clock to ensure that this is achieved.